Diamond-Dybvig model cast in a global games framework, we show that while the CoCo conversion of the issuing bank may bring … the bank back into compliance with capital requirements, it will nevertheless raise the probability of the bank being run … on other banks in the system in the likely case of correlated asset returns, so bank runs elsewhere in the banking system …

. A bank with higher capital has less …

. A bank with higher capital has lesschance of breaching the ratio, so may actually take more risk. As a result, banks … stylized facts about pre-crisis bank behavior, and suggest implications for the optimal design of capital regulation. …